Global Minimum Effective Tax Rate As Global General Anti Avoidance Rule

Saturday, June 25, 2016: 10:45 AM-12:15 PM
250 Dwinelle (Dwinelle Hall)
Rifat Azam, Columbia Law School, New York, NY; Radzyner School of Law (IDC) Herzliya, Herzliya, Israel
In this article we will propose “The Global Minimum Effective Tax Rate” as a new and different global general anti-avoidance rule that is especially designed to combat BEPS and tax avoidance in international transactions. According to our proposal, if the global effective tax rate of any MNE is below the Minimum, the MNE is required to pay additional taxes to its resident country up until the Global Minimum Effective Tax Rate. We propose for the USA or any other country unilaterally and for the OECD Multilaterally to adopt a new GGAAR under which if their residence multinationals don’t pay 15% global effective tax rate on their foreign subsidiaries income, then, they must complete their tax liability and pay the difference up until the minimum to their home country. The global effective tax rate is calculated according to the ratio between the global tax paid and the global earnings and profits (E&P) in the financial statements of the multinational group.

We argue that this regime reduces the incentive to shift incomes to low tax jurisdictions since the income will be taxed anyway by the home country. In our opinion, this regime is expected to reduce the lock off effect as the tax benefits of keeping profits outside the USA to benefit deferral will be reduced substantially. We believe that this regime balances competitiveness appropriately to design more fair and efficient international tax regime on Multinationals. We will detail our proposal, present its justifications, compare it with other “minimum tax” proposals including presidents Obama Proposal which has some similarities and some differences from our proposal and finally we will respond shortly to the main counter-arguments to our proposal. We have some reasons to believe that the USA is ready to adopt some form of minimum tax on foreign income as president Obama proposal for example reveals. We call the USA policy Makers to adopt our version and proposal of Global Minimum Effective Tax Rate as Global General Anti Avoidance Rule. We expect and call for wide global adoption of our proposal unilaterally and multilaterally.

            Following the introduction, chapter II elaborates on the challenges of Base Erosion and Profit Shifting and the measures taken by the OECD and the USA to cope with these challenges. Chapter III analyzes the theory and practice of general anti-avoidance rules at the national and international level to fill the gap in this regard at the international level. This chapter makes our argument that well designed GGAAR is needed and could contribute in handling BEPS and designing fair and efficient international tax regime on Multinationals. In chapter IV we will advocate our proposal for the introduction of Global Minimum Effective Tax Rate as a Global General Anti Avoidance Rule. The article concludes by some conclusions.